In a 5-4 decision on Monday, the justices affirmed conclusions by much of the scientific community that greenhouse gases are an air pollutant.
But they said the Environmental Protection Agency could not completely extend its regulatory authority for limiting the expansion or building of new facilities like power plants.
In the larger political sphere, this issue was seen as a major test of executive authority.
Many conservative groups have painted President Barack Obama as misusing his power and ignoring the will of Congress.
For industry, it was a limited victory involving complaints the administration used its power to include the development of infrastructure.
Businesses worry the unchecked, expanded rules could someday apply to millions of other small carbon emitters — schools, small businesses, and shopping malls.
But the court agreed to some extent.
“The EPA’s rewriting of the statute was impermissible,” said Justice Antonin Scalia.
But the court majority said the administration was not being hampered too greatly, since EPA can still regulate all but 3 percent of the 86 percent of sources responsible for greenhouse gases.
“Recognizing such a power would contradict the principle that Congress, not the President, makes the law, and would undermine the separation of powers that is crucial to our constitutional system of government.”
The ruling removes one avenue for the EPA, while keeping other regulation in place.
The agency did not see the ruling as a negative.
“Today is a good day for all supporters of clean air and public health and those concerned with creating a better environment for future generations,” it said in a statement.
The government is now expected to continue pushing for authority over emissions from coal-fired plants. And the court’s action will not end what are expected to be further court fights between the administration and industry.
Obama earlier this year announced new rules to extend carbon emission standards to larger trucks and buses. The White House said ongoing stalemates on Capitol Hill prompted him to act.
Republicans in Congress and their allies have expressed similar concerns over discretionary executive branch changes and delays in implementing Obamacare reforms, a tepid federal response to recent state marijuana legalization, and a refusal to defend a law that did not recognize legally married same-sex couples for federal purposes.
The high court last summer struck down that provision in the federal Defense of Marriage Act.
The justices in 2007 agreed with EPA and many environmentalists that greenhouse gasses, including carbon dioxide, methane and nitrous oxide emissions, cause air pollution, but that case dealt with emissions from motor vehicles.
Defining “air pollutant” within the context of greenhouse gases and the ability of the EPA to exercise its regulatory authority absent what it says was a clear congressional mandate — was the issue here.
“Today the U.S. Supreme Court delivered a stern rebuke to the President,” said Texas Attorney General Greg Abbott. “It is a resounding defeat for those, like the President, who would use unelected bureaucracies to override the will of the people.”
Texas and 16 other the states in the South and Midwest were among the parties whose cases were reviewed by the high court.
A coalition of 15 states backs the White House. Some progressive groups worry the conservative majority Supreme Court has been overly friendly to corporate interests in recent years.
This is the second major environmental regulation case that will be heard this term.
The justices earlier this year allowed the EPA to measure emissions from an upwind state that is polluting a downwind state, and requiring upwind states to pay for greenhouse gas reductions.
Many business groups had hoped hope the conservative majority would limit the reach of government in this and a range of regulatory areas, which the Chamber of Commerce and others say is hurting the economy and stifling innovation.